Binance’s risk estimation of selling short over rise and buying long over fall trend strategies

The strategy has been public sharing for 4 days now. The early stage preformed very well, with high returns and few retracements, so that many users are using a very high leverage to gamble a 10% return per day. However, as stated in the initial report, there is no perfect strategy. Selling short over rise and buying long over fall trend make use of the characteristics of altcoins to rise and fall together. If a currency moves out of a unique trend, it will accumulate many holding positions. although a moving average was used to track the initial price, the risks still exist. This report mainly quantifies the specific risks and why the parameter recommended trade_value accounts for 3% of the total funds.

In order to highlight the code, we put in advanced of this part, everyone should try first run the following code (starting from the import libraries part).

In order to simulate, we assume there are 20 currencies, but only need to add BTC and ETH, and use BTC to represent 19 currencies with constant prices. ETH represents the currency with independent trend currency. Due to it is only a simulation, there is no need to track the initial price by moving average here, assuming that the price is rising at a rapid rate.

First, simulate the situation where the price of a single currency continues to rise. Stop_loss indicates that the stop loss deviates. Here is only a simulation. The actual situation will have intermittent retracement, it will not as bad as the simulation.

Suppose there is no retracement to this currency, when the stop loss deviation is 0.41, ETH has risen 44% at this time, and the results finally became lost 7 times of the trading value, that is, trade_value * 7. If trade_value is set to 3% of total funds, then loss = total funds * 0.03 * 7. The maximum retracement is about 0.03 * 7 = 21%.

In simulating the situation of continuous decline, the decline is accompanied by a decrease in the value of the contract, so the risk is higher than the rise, and as the price falls, the rate of increase in losses is accelerating. When the stop loss deviation value is -0.31, the currency price drops by 33% at this time, and a loss of 6.5 transactions. If the trade amount trade_value is set to 3% of the total funds, the maximum retracement is about 0.03 * 6.5 = 19.5%.